Brokexit – Brokering Brexit and Finding Working Solutions

CILT examine the remedies companies can use post Brexit and how they can adapt and implement these. Here we explore some of the possible solutions open to Irish industries from the perspective of a number of stakeholders CILT have worked with collaboratively in recent times.

TIR – Transports Internationaux Routiers
Since 1949, the TIR System has been one of the road transport industry’s most successful innovations – making customs procedures and international border crossings quick and simple.

The purpose of the TIR system is to facilitate, to the greatest possible extent, the movement of goods in international trade while effectively protecting the revenue of each state through which such goods are carried. The TIR system contains four basic requirements:

• Goods should travel in secure vehicles or containers;
• Duties and taxes at risk throughout the journey must be
covered by an internationally valid guarantee;
• Goods should be accompanied by a TIR Carnet initiated
in the country of departure, which serves as a control
document in the countries of departure, transit and
destination;
• Customs control measures taken in the country of
departure should be accepted by Customs in the
countries of transit and destination; and controlled
access to the TIR procedure for national associations to
issue TIR Carnets and for natural and legal persons to
utilise TIR Carnets.

The system provides for the movement of goods, under Customs seal, in approved road vehicles or containers, across one or more frontiers. It is a condition of the system that some portion of the journey between the beginning and end of the TIR operation is made by road. Where a road vehicle is used, TIR plates must be displayed on the vehicle during the TIR operation. Where a container is used it must have a TIR approval plate permanently affixed. The goods are listed in a TIR Carnet consisting of a series of vouchers and counterfoils (volets and souches), which will be used at the different stages of a TIR operation. The potential duties and taxes on the goods are guaranteed by the guaranteeing associations of the countries involved in the TIR operation. Each national guaranteeing association is affiliated to an international organisation i.e. the International Road Transport Union (IRU) Geneva, Switzerland.

eTIR
The eTIR initiative is taking this innovation a step further and with the advent of blockchain technology will make the system one of the strongest contenders for the post-Brexit customs relationship with the UK. The move to a paperless system gives real-time data availability, online monitoring, improved reliability and flexible guarantees. The global industry association for road transport, the IRU is working on an eTIR pilot project in collaboration with the United Nations Economic Commission for Europe (UNECE). The Turkish and the Iranian governments have tested the eTIR System along one transport corridor, crossing the border from Turkey to Iran and involving four customs offices. Today, having successfully demonstrated 100% reliability, these procedures are being extended to further customs offices and transport operators. The pilot shows how the system offers tools to rely exclusively on electronic messages from all communications.

“At the moment TIR may or may not prove to be useful in the concept of customs post Brexit,” says Phonsey Croke of Croke Consulting, a Customs expert.

“It depends on the outcome of the trade related talks between the EU and the UK which are likely to commence late 2017 and early 2018.

“The one clear way of minimising this is to make use of customs simplifications which are currently in the Union Customs Code. This assumes that the UK will mirror such simplifications in their upcoming customs legislation. The way to avail of these simplifications is to become a certified Authorised Economic Operator.

“However, he points out, this has its own challenges for Irish companies since today most are not involved in customs business at all. In addition, he says, it will not be enough for the transport service providers to become AEO certified. “The principals (manufacturers/exporters etc.) must also be certified. The principals will need the AEO certification more so than the transport providers.”

Phonsey Croke, Croke Consultants

Authorised Economic Operator
In essence the AEO is an internationally recognised quality mark, which indicates that the role of qualifying businesses involved in the international supply chain is secure and that their customs controls and procedures are compliant. After 11th September 2001, in order to reduce the risk of such threats, the World Customs Organisation (WCO) devised a system for increasing security of the supply chain. These new security measures such as advance cargo information and
more robust risk analysis systems had the potential to slow down the movement of goods through borders. In order to lessen this slowdown, the concept of AEO was introduced by the WCO. The EU adopted a similar programme shortly afterwards.

Becoming AEO certified requires implementation of a comprehensive customs compliance programme within a business. This will provide assurance to the business that its customs procedures and practices are up to standard. Companies will be cleared through customs with the minimum of formality removing any potential for delays as a result of the physical searching of containers and so on. Getting AEO certification should position a business well in light of the fact that customs simplifications are now exclusively available for AEO certified entities. These simplifications will, among other things, only require the submission of one customs report per month in respect of all transactions for that month – reducing overhead compliance costs and helping to create a seamless border.

Mutual recognition between AEO programmes involves a country’s government formally recognising the AEO programme of another country’s government, and thereby granting benefits to the AEOs of that country. These AEO programmes will really show benefits for all of those involved in imports and exports once mutual recognition is achieved between AEO programmes globally.

The first mutual recognition agreement was completed between the United States and New Zealand in June 2007. A similar agreement has been concluded between the EU and Japan. Canada and Russia are currently in discussions with the EU about mutual recognition as well.

Following Brexit, the UK and EU will likely agree to an AEO recognition agreement between each other providing trade facilitation measures for AEO certified businesses both in the UK and in the EU. Non-AEO businesses will not benefit.

There are two stages in the application process to become AEO Certified as follows:

1. The application
2. The evaluation

The time frame for the completion of the package of documents associated with the applications to the point of submission would normally be in the region of three months.

The evaluations can take up to four months to complete. That is the time limit customs have by law to complete the assessment phases and to make the decisions. Usually there are three or four site visits made by customs officials to evaluate applications.

AEO and the Union Customs Code (UCC)
Changes brought about by the Union Customs Code (UCC), introduced across the EU in May 2016, aim to achieve greater legal certainty for businesses and also increased clarity for customs officials.

“It seeks to improve and simplify customs rules and procedures,” says Conor Anderson of Analytiqa, a business intelligence consultancy specialising in supply
chain.

“It also looks to further harmonise decision-making procedures and lead to more efficient customs transactions. Some of the key amendments include changes to the areas of centralised clearance, self-assessment, penalties, and decisions relating to binding information and valuation.

“Amongst the fundamental changes is the introduction of mandatory guarantees for customs procedures, which could increase operating costs for trading businesses and significantly affect cash flows. Businesses with AEO status will be able to obtain guarantee waivers or guarantee reductions of up to 100% on any bond guarantees or bank guarantees they currently have with customs.”

Why should I apply for AEO accreditation?
The broad objective of AEO accreditation is that organisations that achieve AEO status will be given benefits that will lessen the impact of increasingly tighter and more restrictive security measures in the supply chain, compared to non-AEO accredited businesses. Used effectively as part of a marketing and communications strategy, AEO accreditation is a highly valuable differentiator that sets an organisation apart from its competitors. Additionally, benefits of achieving AEO accreditation include:

• Provides a logistics service provider the ability to
respond to increasing numbers of tenders from International
companies that require AEO specification;
• Facilitates greater efficiency of processes within local
operations, improving lead times;
• Subject to less physical inspection and document checks
by customs and organisations gain priority in times of
heightened security, strikes or other supply chain
disturbances;
• Encourages the effective management of, and reduction
in, the risk of theft, counterfeiting, contamination or
grey market shipments;
• Improved delivery times, customer satisfaction and
client retention;

AEO status brings with it the ability to apply for a single community authorisation to use simplified declaration procedures across the EU and the ability to apply for a special procedures authorisation involving more than one Member State.

Education is Key
“As a consequence of Brexit,” says Aidan Flynn of the Freight Transport Association (FTA), “the supply chain is being forced to review and rethink how goods can get to the market, principally due to the hard line position the UK have taken at the time of writing. Managing change is a daunting prospect as it requires, time, clear guidelines, ‘buy in’ from employees, collaboration and commitment from all. We all want to know, what can be done now in preparing for Brexit Day? The common answer at the moment is nothing! Or will we wait and see how the negotiations go? Is this sensible?” he asks.

“Should you in the first instance, review your business and determine how exposed and reliant you are on business to and from the UK/ Northern Ireland market? Would it not be sensible to start this conversation with your clients, suppliers, haulage contractors, freight forwarders, shippers?”

A rules-based trading environment
Over the past 20 years or so the ‘just-in-time’ principle of distribution of goods has established itself as meeting the demands of the market. This has been facilitated by membership of the Customs Union and the single market. If one or the other is removed there will be ‘friction’ at borders, customs checks and delays, administrative burdens and red tape.

It is increasingly likely that the UK will not be part of the Customs Union or the single market post-Brexit. The white papers published by the UK on Ireland, Customs Trade detail their proposed thinking on future trading and customs arrangements with Ireland and the EU.

They want to pursue a ‘rules based trading environment’ as they believe this will ‘enable economic and security cooperation, encourage predictable behaviour by states and the peaceful settlement of disputes’. To do this they hint that possible solutions would be the adaption of schemes such as the Approved Economic Operator (AEO) programme which will be vital to ensure a ‘trusted trader’ scheme that will result in minimum levels of friction and delays at borders.

For this to work in the context of Ireland-UK trade, all in the supply chain must participate in it at some level to achieve the ‘trusted trader’ outcome to satisfy the principal.

“This will be a very optimistic task,” argues Aidan Flynn. “If a transition period is not agreed – AEO accreditation takes time to achieve, up to six months and often longer, and to date there are just over 130 companies in Ireland registered to the scheme. For a pure workable ‘trusted trader regime’ to be viable all in the supply chain must be active and willing participants, and there will need to be mutual recognition of the scheme between the UK and the EU. Reality is beginning to bite, collaboration within the supply chain to develop industry wide solutions and prepare for change are vitally important.”

“There is an opportunity for the Irish Transport and Logistics sector to grab the initiative and pre-empt the inevitable, that is, start preparing for a future that will require more transparency around the driver, vehicle, load, pickup and delivery locations etc. Doing this will at the very least ensure you are operating to the highest standards of professionalism and compliance and that this is demonstrated through attainment of independent standards that are periodically audited.

“This is part of what ‘trusted trader’ is all about, another part is that the supply chain is linked together in terms of the rules and requirements for doing business.”

The unfortunate reality of Brexit is that there are a plethora of new processes and terminology that most in the industry were vaguely aware of but now must fundamentally understand, study and implement.

“For solutions and responses to be effective,” says Aidan, “both industry and Government must work together to make sure the issues are understood and that solutions such as resourcing of new skills and new systems are planned for. They must be all inclusive and give everyone a fair chance to trade within the new rules. AEO could very well be part of a solution and must be considered. What can be done now is distributors can review and audit their current levels of operational compliance to roadworthiness issues, tachograph and driver hours. Manufacturers can review the impact WTO rates will have on their product, they can also review where they are exporting or importing from and shippers can work with both to make sure everyone is on the same page and planning to have the least disruption to accessing vital markets on time.”

Every link in the supply chain must work collaboratively to develop strategies to prepare for Brexit Day. Most importantly companies should be preparing case studies of the impact Brexit will have on their businesses and sharing this information with trade associations, representative bodies, Government officials, local politicians and EU representatives.

“Time is moving on,” says Aidan Flynn, “and one wonders if the significance of the deadline date is really sinking in with industry. It is vitally important that there is a clear understanding of the nature of the exposure on businesses and jobs for our industry now.”

Aidan Flynn, FTA

Invest in Education
The transport and logistics sector currently faces a serious skills shortage across all levels which hinders progress and makes dealing with change extremely difficult. A real way to deal with change is to invest in training and education.

Even without Brexit investment in training and education is urgently required. There are some key issues the industry needs to confront so that it is better prepared. Why is there is a skills shortage in the first place?

The industry is on the verge of the biggest shock to the supply chain in decades and on the cusp of an automated revolution. Getting people interested in a career in transport and logistics is of vital importance and should be actioned straight away.

Training and education, up-skilling and continuous professional development must become the norm, not the exception. Industry must really commit to adding value to careers in their companies and making them more attractive to young people.

There are a number of existing initiatives available now that can make a real difference in future proofing your business. Support Apprenticeship programmes (which must be industry led) by matching employees into positions that fit in with available apprenticeships.

If they are not there yet share your requirements with the likes of the CILT or FTAI or other associations and review options.

Apprenticeships are ideal for our sector and a viable solution to help add value and direction for the participant. Apprenticeships help form a culture of progression within industry that will ultimately result in a better skilled workforce.

Training and education obviously costs money but industry should concentrate on the return on investment such as improved productivity, employee loyalty, happier employees and improved efficiencies to name a few.

Government are already providing training subsidies through the likes of the Skillnets programmes run by the CILT for the transport and logistics sector. Support it, make the most of the funding that is available. The harsh reality at the moment is that the transport and logistics sector are not exploiting what is available.

Skillnets is a great opportunity to avail of 20% saving on the cost of training that your business needs to be doing anyway. Some examples of roles that will benefit from a renewed focus on training and education are:

Brexit will require all sorts of new skills as will digital data management and automation solutions, all of which will obviously require up-skilling. Start now, develop your training and development plan for 2018, remember Skillnets and the soon to be announced new apprenticeship programmes.